I was recently interviewed by the Wall Street Journal about the IRS LB&I audit campaigns discussed here. An interesting part of the conversation included a discussion of why the IRS would tell taxpayers what issues they are targeting. The bottom line is to increase compliance. The IRS has identified issues it believes a significant number of taxpayers are non-compliant and is focused on those for one reason: to generate revenue and collections. There are a few things to keep in mind as you evaluate how to respond to the IRS audit campaigns:
- The use of “soft letters” indicates the IRS is encouraging taxpayers to self-correct. It is always better to self-correct than to deal with an issue in audit. Especially when that issue is something the IRS has highlighted publicly as an issue they are targeting.
- Failure to self-correct may give the IRS a stronger position for asserting penalties.
- The 13 IRS audit campaigns identified is not a finite list. It is an initial list which we expect will evolve over time.
Due to budget constraints, it makes sense that the IRS is targeting significant issues and encouraging self-correction which allows the IRS to increase revenues without significant manpower.
You can read the Wall Street Journal article here.